Financial Market Report

Albania

In cooperation with AUSSENWIRTSCHAFT AUSTRIA.

A U S S E N W I R T S C H A F T A U S T R I A

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Country Profile: Albania Raiffeisen Research. As of March 2017.

The Albanian Financial Market

1. The Political Situation and Economic in Albania . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

2. Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. Taxes and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

5. Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6. Subsidies and Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

7. Risk Hedging and Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

8. Payment and Account Services at Raiffeisen Bank Sh. a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

9. Raiffeisen Bank Sh. a. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

10. Your International Business Specialists at Raiffeisen Bank Sh. a.

and the Global Raiffeisen Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Important:

Despite thorough research and the use of reliable sources, we cannot accept responsibility or liability for the completeness or accuracy of this brochures contents. The purpose of this brochure is to give you initial, general information to help you develop business relationships in Albania. The content of this brochure does not consti-tute any form of advice or offer or invitation to make an offer.

Prepared in cooperation with AUSSENWIRTSCHAFT AUSTRIA at WK (the Austrian FederalEconomic Chamber).

Sources:Raiffeisen Bank International AGWKO: Albania Country Report of the AUSSENWIRTSCHAFT AUSTRIABibliography: Skok B., Gotwald A., Jungreithmeir T. (2008), Frderinstrumente fr Sdosteuropa (Subsidy and Support Instruments for Southeastern Europe). Vienna: Linde Verlag Wien.

Copy deadline: May 2017.

Currency: Albanian lek (ALL) Gross Domestic Product and Budget 2015 2016 2017e 2018fReal GDP growth, % p.a. 2.6 3.5 4.0 4.0Nominal GDP, bn 10.3 11.0 11.8 12.4Per capita GDP, PPP basis, 7,800 7,900 7,900 n.v.Growth in industrial output, % p.a. 3.0 1.0 2.5 3.0Consolidated budget deficit, % of GDP -4.0 -2.5 -2.0 -1.0 Inflation and Employment Jobless rate, annual average, % 17.7 15.0 14.5 14.0Average monthly gross wage, 368.6 385.9 394.4 401.8Consumer price inflation, annual average, % p.a. 1.8 1.3 2.5 2.7 Balance of Trade and Current Account Goods exports, bn 0.9 1.2 1.5 1.6Goods imports, bn 3.0 3.4 3.8 3.7Current account deficit, bn -1.4 -1.5 -1.6 -1.5Current account deficit, % of GDP -13.6 -13.6 -13.6 -12.1Foreign debt, % of GDP 72.6 71.7 68.8 67.0 Rates of Exchange and Interest Rates Local currency/US$ (average) 126.0 124.2 132.9 132.7Local currency/ (average) 139.7 137.3 136.9 139.43-month money market rate (TRIBOR), average, % 2.62 2.50 2.50 3.00 Country Ratings S&P B+ Moodys B1 Fitch not rated n.a.: not available. U: unrated.

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2. Company Law

Forming a companyAlbanias economic development depends on foreign investment. Not only is foreign capital important; so too is business know-how. A modern foreign investment act based on World Bank guidelines and enacted in 1993 (Law No. 7764) makes it possible to form companies that are 100% foreign-owned, and whose pro-fits can be transferred out of Albania. Foreigners can own ordinary land, but they can only own building land if the value of the investment is at least three times the value of the land. Albanian subsidiaries can own land without any restrictions. The land register is far from reliable, so one must carefully check who really owns a property. A new companies act has been in force since 2007. In practice, setting up a branch (for which the same accounting rules apply as to a subsidiary) or a representative office (which is not allowed to carry on any business activity) is a possible alternative to, or preliminary stage of, forming a company (which will usually be a limited liability company). In these cases, the same registration requirements apply, in theory at least. According to Law No. 9723 (dated 3 May 2007, and which came into force on 1 September 2007) concerning the National Registration Centre (NRC), new entities are to be registered with the NRC. The list of documents required for the initial registration of a new company with the NRC will depend on the particular companys legal form. Generally, the following documents will be required to register a new company with the NRC: an application form signed by the companys legal representatives or by the authorized persons; the memorandum and articles of association signed in the presence of a notary public; the document that specifies the companys boards and bodies if not included in the above articles.

The following documents will be required to register a branch or representative office with the NRC: an application form signed by the companys legal representatives or by the authorized persons; the memorandum and articles of association of the parent company and all amendments thereto; a document proving the foreign entitys registration in its country of domicile; a document evidencing the good standing of the foreign legal entity issued no more than 90 days before

the date of application, and which states the date of registration, other relevant dates, and whether the entity is in bankruptcy or liquidation;

if the foreign entity has been active for more than one year, its balance sheet for the most recent financial year prepared in accordance with the standards applicable in the respective foreign country;

a resolution by the competent body of the foreign legal entity regarding the setting up of a branch or representative office in Albania; if the person filing the application is also the competent body authorized to act alone on the foreign legal entitys behalf, the registration application form will subsequently serve as a replacement for the relevant documents;

the document appointing the branch or office manager if the appointment is not included in the above resolution.

Completion of the registration process and the issued registration certificate constitute proof of the applicants business registration, fiscal registration and registration with the social insurance, health insu-rance and labour inspection authorities. All documents must be translated into Albanian and notarized.

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Albania has a GDP per capita equivalent to EUR 3,817, which is approximately 25% of the GDP per capita in the Eurozone and corresponds to EUR 7,900 in purchasing power parity. The GDP per capita has increased in recent years. In 2016, GDP in Albania grew by 3.5% compared to the previous year. Economic growth has therefore significantly increased in the last few years. This economic growth can mainly be traced back to the service sector and construction. We expect an increase in GDP in 2017 and 2018 of 4% compared to the respective previous years, whereby continuing FDI in large energy projects and a gradual recovery in domestic demand are expected to contribute significantly. Average inflation for 2016 was 1.3% compared to the previous year and was therefore below the long-term trend. Inflation gradually increased in the second half of 2016, reaching a peak of 2.2% in December 2016, food and oil prices being the main factors in this. However, we expect a significant increase in inflation in 2017 and assume an average rate of inflation of 2.5%, followed by a return to the target value in 2018; therefore, we do not expect the monetary policy stimuli to slacken before the final quarter of 2017. The unemployment rate in 2016 was 15%. We expect unem-ployment to fall further during 2017 and 2018, which, in turn, could lead to increased inflationary pressure.The budget deficit for 2016 amounted to 2.5% of GDP - significantly lower than in previous years. We expect low budget deficits for 2017 and 2018. The national debt ratio has fallen for the first time in five years, from a peak value of 72.2% of GDP in 2015 to 70.5% of GDP in 2016. We are of the opinion that the public sector will continue with these fiscal adjustments over the medium term in order to get the national debt ratio below 60% of GDP by 2019, achieve an acceptable state deficit of -2.0% of GDP in 2017, and drive the imple-mentation of structural reforms forward. Albanias current account had a deficit of 13.6% of GDP in 2016. We expect the current account deficit to stagnate in the coming years. Foreign debt amounts to 71.7% of GDP (2016) and has therefore risen in the last few years. However, this development could experience a turnaround in the next few years and result in slightly lower foreign debt ratios.

The Albanian lek slightly increased in value against the Euro in 2016. In line with the stronger US dollar, the lek may also increase in strength against the euro in 2017. We only expect the EUR/ALL exchange rate to return to a level of 140 or more in the years afterwards. At the